Wednesday, July 31, 2013

I think that for now, the US is still the dominant financial market and the dominant financial power. I think we have numerous problems in China, and I personally pay more attention to what is happening in China and in other emerging economies than to what Mr. Bernanke is saying.

Tuesday, July 30, 2013

Yes, until the system breaks down. My view would be that there will be money printing, and the problem with money printing is always that you don’t control where it goes to. Ideally, it would go into higher incomes of the middle class and of the working class, but this hasn’t really happened. The real wait is for the typical household or the medium household, they are going down. What is going up is basically selected asset markets, like the real estate market has recovered. In some areas, we’ve hit new highs. The stock market has gone up. But as you know, only very few people own stocks in the United States, so it doesn’t impact the wealth of the majority of people.

Monday, July 29, 2013

I don’t think they[Fed] will end QE. I rather think they will have to increase it because as you print money or as you purchase assets, from a central banking point of view, it loses its impact over time. In order to keep the impact going, you have to essentially increase it. I believe that the Dovish members of the Fed will print more money. Especially after the resignation of Mr. Bernanke early next year, when he will be replaced, there will be even more Dovish members.

Friday, July 26, 2013

The problem in America is that real wages, real compensation has been down since the 1970's. But at the same time, asset prices, equities, real estate and so forth have gone up dramatically, and that favors people who have these assets.

And so the ratio expanded and you have now a record wealth, inequality, and income inequality.

Tuesday, July 23, 2013

In my view the global economy isn't growing much, as is evident from the sales report of McDonald's, Caterpillar," he said. "The market is a discounting mechanism. It has already discounted QE unlimited. The impact of continuous monetary easing is diminishing

Monday, July 22, 2013

In general corporate earnings will disappoint. They may not collapse, but they will not be as good as expected and my sense is they will decline from the current level which is by historic standards extremely elevated. In particularly cyclical companies, the Caterpillars, semi conductors, companies in materials I think will have a tough time to meet expectations of earnings.

Friday, July 19, 2013

In Asia there are very diverging performances. The markets like the Philippines, Indonesia and Thailand are up 3-4 times from the 2009 lows. These markets are very extended.

The Chinese market, apart from Vietnam and until last October Japan, had been in a declining mode. In some cases very depressed like Japan in October of last year, it had been in a down trend since 1989. So these markets are probably reaching a buying range.

In case of India I am not so sure there is a great hurry to buy anything because the market may not go down equally, but the currency would still seem to be vulnerable.

Thursday, July 18, 2013

The only game in town in the last 12 to 18 months has been the US. So you have most markets in the world going down and the US going up. It is very likely that the US market has already peaked out at 1687 on May 22nd on the S&P and if the market makes a new high it would be only with a few stocks making new highs. The majority of stocks will not make new highs.

Wednesday, July 17, 2013

Central banks around the world will continue to pursue easy monetary policies and there will be very little tapering. But in the unlikely case, where the US economy were strong and showing strong growth, in half an year or year's time, then they will reduce the purchases of assets.

But in a scenario where the economy stays weak and continues to disappoint, I do not think that they will taper much. In fact, Mr. Bernanke is most likely to retire and some other Fed members will try to make Mr. Bernanke look like a hawk and they have argued for unlimited QEs forever and that is likely to be the case.

Tuesday, July 16, 2013

I think the stock market in the US has risen from 666 on the S&P to now over 1600. I don't think there is much upside potential, and has a considerable downside risks. It could be that all the money in the world flows into US stocks and avoids emerging markets as in the case it is right now with the money flowing into the US but I wouldn't bet on it.

Monday, July 15, 2013

I have repeatedly stated that I will buy gold. I expected this correction and I would buy gold at $1300 an ounce and then at $1200 an ounce and then at $1100 an ounce. But I have a disciplined approach to my asset allocation, whereby I would not invest more than 20-25% in gold.

Sunday, July 14, 2013

We had a huge bull market in gold and silver between 1999 and 2011. In the case of gold (September 2011), the prices reached $1921 and since then, we have been in the correction period as we are down 37%.

Now, the question is -- does the decline in gold prices signal that despite of all the money printing the world will face a more significant deflationary shock, especially in asset prices? We are approaching a low in gold, but it is not yet confirmed.

Friday, July 12, 2013

We are probably at the beginning of a more significant asset class deflation. If you look back, we had huge increases in asset prices, whether it is real estate, equities, bonds, gold or commodities.

When you print money, prices do not go up evenly and they do not fall all at the same time. So, the money flowed between 1996 and March 2000 into high-tech NASDAQ stocks and also in India. Then this was deflated and post 2000, we had in the US the colossal credit bubble where the money flowed mostly into housing which was deflated after 2007. After that, we had a huge flow of funds into emerging markets and emerging market bonds. I think that will also be deflated as in some cases we have already gone down quite a bit.

In case of India, the Indian ETF is now down 32% from the November 2010 high. It has performed miserably, relatively to the US. So the market will bottom out, but it is too early to buy anything at the present time.

Thursday, July 11, 2013

It looks as if the Chinese economy growth has de-accelerated very significantly. It also looks like we have a gigantic credit bubble in China. If China grows at 3 percent or 4 percent instead of trend-line growth of 10 percent, it will have a huge demand on industrial commodities.

At the same time it will have a huge impact on the income of countries producing commodities such as Australia, Africa, Central Asia, Middle East. if these countries have less income, they buy less from China, Europe and America. The overall demand declines and you have an earnings contraction.

Wednesday, July 10, 2013

It is possible Gold goes somewhat lower, but having declined from $1921 to $1232, I think gold is now at a reasonable level and I keep buying gold regularly. I have faith that eventually Gold prices will be higher.

Tuesday, July 9, 2013

For the first time in my life, I bought European shares, and I plan to buy more. I wasn't optimistic for a long time, although I bought some Swiss insurance stocks after the crisis in 2009. Then, last May, I took another look, as sentiment was so negative. The S&P had doubled from its 2009 lows, yet many markets in Europe were at or below their 2009 lows. Something was out of sync.

Markets in Europe have made major lows. But investors don't fully comprehend what happened in Cyprus. In the event of future bailouts, bank depositors will lose a percentage of their money. Money in the bank isn't 100% safe anymore. That's why I own stocks, and corporate bonds, and real estate.

Monday, July 8, 2013

Provided there is peace in Asia, the long-term economic outlook is good. Countries such as Laos, Cambodia, and Myanmar are opening up, and Vietnam is reopening. There are 500 million people in this region. Wherever you go, people are talking about Myanmar. They seem to love it as much as they loved Vietnam right near the market's peak in 2006.

Sunday, July 7, 2013

Gold is down 30% from its 2011 peak of $1,921, but has far outperformed financial assets since 1999. A correction was overdue. I have about a 25% allocation to gold and buy some every month. I want to have some assets that aren't in the banking system. When the asset bubble bursts, financial assets will be particularly vulnerable.

Gold is easier to carry than a Lamborghini.

Most of my gold is in a safe-deposit box in Switzerland, but I am shifting it to Asia. I also like resource stocks such as Newmont Mining (NEM), Chevron (CVX), and Total (TOT).

Friday, July 5, 2013

I hold lots of cash, in U.S. dollars. Plus, I like some other investments such as the India Capital Fund, which is available to accredited investors. The fundamentals of Kazakhstan are strong, but the country's bonds have rallied. Thus, I prefer shares of Kazkommertsbank, which trade for less than one times book. Finally, the Euphrates Iraq Fund is a way to play an early-stage frontier market that is starting to attract local and foreign capital.

Wednesday, July 3, 2013

There has been a huge credit bubble in China, and it isn't going to end well. Its economy officially grew 7.7% in the first quarter. In reality, it is growing 4% a year, at best. Figures on Chinese exports to Taiwan, South Korea, Hong Kong, and Singapore don't agree with the import figures of those countries. In each case, reported exports are much larger than reported imports. Singapore publishes relatively honest economic statistics. Its gross domestic product has hardly grown in the past six months. Inflation is about 4% a year. Here in Thailand, growth has slowed despite massive fiscal stimulus. Trade and current-account surpluses have been shrinking in Malaysia, Indonesia, and other countries.

Again, the economy of the rich is booming. There has been huge wealth accumulation in Asia in recent years. But the middle class has experienced diminishing purchasing power. Throughout history, growing wealth inequality has been corrected either peacefully, through taxation and wealth redistribution, or by revolution, as in Russia. I am not sure we will have a revolution in the Western world, but I can see European voters turning against the arrogance of the bureaucracy. There have been so many scandals involving French politicians with Swiss bank accounts, and so forth.

Monday, July 1, 2013

American economists’ high esteem of consumption as the motor of economic growth has a long tradition dating back to the early 20th century. The continuous drive to boost consumption has led to Affluenza, an All-Consuming Epidemic, which is accompanied by an unprecedented array of escalating imbalances: ever-declining personal savings; a large fiscal and current account deficit; exploding government and consumer debts; and, a protracted shortfall in business fixed investment, employment and available real incomes.

The current mantra of “selling” emerging markets and “buying” the US is likely to disappoint even if the US stock market continues to outperform. After all, the out performance may arise from US equities declining less than emerging stock markets. In this context, I should like to point out that the late May/June sell-off has been extremely benign by historical standards and that far more downside volatility is likely to occur in the months ahead.

I wish my readers a pleasant summer and to remember the words of Roy D. Chapin: "Be ready when opportunity comes...Luck is the time when preparation and opportunity meet."

There are a lot of bad loans in the banking system, and the stock market has fallen 70% from the highs. But exports are strong, and the people are hard-working. There is a 35-kilometer stretch of beach between Danang and Hoi An that will be a huge resort area in the future. It is only an hour and 10 minutes by plane from Hong Kong, and two hours from Singapore. A Park Hyatt resort in the area has been selling villas and condos, and almost all have been bought by Vietnamese. I visited during a holiday, and 90% of the people on the beach were Vietnamese. One man even brought his Lamborghini.

You can find companies in Vietnam with yields of 5% to 7%. I like Military Commercial Bank, and I'm overweight Vietnam Dairy Products. It is a dominant force in the diary-foods industry and has been growing by about 20% a year for the past 10 years. It could keep growing by 10% to 15% per annum, and the valuation is low. Sooner or later, it will be acquired.

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